Tag Archives: Asset bubbles

Our Leaders Made a Pact with the Devil, and Now the Devil Wants His Due, by Charles Hugh Smith

Posted on February 22, 2022 | Leave a comment

Faustian bargains always have a way of making those who made them deeply regret it. From Charles Hugh Smith at oftwominds.com:

The unprecedented credit-fueled bubbles in stocks, bonds and real estate are popping, and America’s corrupt leaders can only stammer and spew excuses and empty promises.

Unbeknownst to most people, America’s leadership made a pact with the Devil: rather than face the constraints and injustices of our economic-financial system directly, a reckoning that would require difficult choices and some sacrifice by the ruling financial-political elites, our leaders chose the Devil’s Pact: substitute the creation of asset-bubble “wealth” in the hands of the few for widespread prosperity.

The Devil’s promise: that some thin trickle of the trillions of dollars bestowed on the few would magically trickle down to the many. This was as visibly foolish as the promise of immortality on Planet Earth, but our craven, greedy leadership quickly sealed the deal with the Devil and promptly inflated the greatest credit-asset bubble in human history.

Rather than trade away one’s soul, America’s leaders traded away the future security and stability of the nation. By refusing to deal with the real problems exposed by the collapsing financial scams in 2008-09, our leaders–both the unelected Federal Reserve and the elected “best government money can buy”–chose to bail out the scammers who had greased their palms so generously and sacrificed the prosperity of the many to do so.

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Posted in Banking, Business, Debt, Economics, Economy, Governments, History

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An “Extreme Warning” From Our Doom Index, by Bill Bonner

Posted on January 18, 2018 | Leave a comment

Here’s another bearish prognostication, from Bill Bonner at bonnerandpartners.com:

BALTIMORE – When we left you yesterday, we were describing why the situation is getting dangerous for investors, and how the lessons learned over the last 30 years may backfire in the next crisis.

“Dow over 26,000… bitcoin under $10,000,” reports this morning’s news… “but could crypto panic spill over into stocks?”

Investors are accustomed to depending on the Greenspan-Bernanke-Yellen Put… which is to say, they are pretty sure that the feds will come in with more booze when the party starts to flag.

“Buy the dip,” they tell each other, confident that the feds can be counted on in a pinch.

Many think the recently passed tax bill is 80-proof, too – sure to rev things up by putting more money in the hands of shareholders and consumers.

Maybe it will raise stock prices. Or maybe it won’t. What it won’t do is make the next crisis disappear.

Bad Tidings

We hate to be the bearer of bad tidings, but bad tidings are all we have to bear.

Corporate America is already pretty flush. The price-to-earnings (P/E) ratio for the S&P 500 is now 70% above its long-term average.

In fact, the price of stocks relative to earnings has only been near this high three times in the last 118 years… each time caused by the aforementioned Fed party favors.

And if stocks go higher, it merely gives them further to fall.

In order to get back to more traditional levels, notes Martin Feldstein in yesterday’s Wall Street Journal, the next bear market would have to wipe out some $10 trillion of stock market wealth.

This, he says, would take 2% off annual GDP… tipping the country into recession.

Extreme Warning

How close is this crisis?

We turn to our Doom Index, put together by our ace researcher, Joe Withrow:

The Doom Index spiked back up to “7” this month – our extreme warning level.

After a surprisingly expansive third quarter in 2017, credit growth fell back to 1.6% in the fourth quarter. Paraphrasing your friend and economist Richard Duncan, bad things happen when credit growth falls below 2%.

Looking at the credit markets, corporate bond downgrades continued to come in at an elevated level last quarter. And junk bonds are starting to show some cracks, falling more than 1% on the quarter. That said, junk bonds still closed out 2017 in positive territory.

To continue reading: An “Extreme Warning” From Our Doom Index

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Posted in Collapse, Debt, Economy, Financial markets, Investing

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How the Asset Bubble Could End – Part 2, by Pater Tenebrarum

Posted on December 21, 2017 | Leave a comment

The second in Pater Tenebrarum’s series on the all-everything bubble. From Tenebrarum at acting-man.com:

Part 1

Contradictory Signals

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There is just one more positioning indicator we want to mention: after surging by around $126 billion since March of 2016, NYSE margin debt has reached a new all time high of more than $561 billion. The important point about this is that margin debt normally peaks well before the market does. Based on this indicator, one should not expect major upheaval anytime soon. There are exceptions to the rule though – see the caption below the chart.

A new all-time high in NYSE margin debt: this is in line with the other indicators shown here, and normally margin debt tends to peak before the market does. This is generally true – but not always.  We found two major market peaks – namely the 1937 and 1973 tops – when margin debt peaked after the market had topped out. In 1937 it happened just one month after the top, in 1973 it happened 8 months after the top. Note also that at the 1937 market peak, there was no warning from the NYSE advance-decline line either – it topped almost concurrently with prices – click to enlarge.

Since we discussed bubble blow-offs earlier this year (see: Speculative Blow-Offs in Stock Markets, Part 1 and Part 2), we have pointed out several times that an unusual number of diverging signals could be observed this year. And many signals we would normally expect to have appeared on the horizon by now are simply not in sight yet.

Consider for instance this chart from Moody’s, which we showed in one of our articles on credit spreads. It depicts debt as a percentage of internal company funds compared to actual and expected default rates. It is logical that these tend to be highly correlated, and yet, they are suddenly diverging rather noticeably.

Similarly, current market valuations and sentiment/positioning data are at such rare extremes that we would normally expect to see a number of “confirming signals” elsewhere by now – but that is not the case.

 

To continue reading: How the Asset Bubble Could End – Part 2

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